Filed under: The Blackstone Group, Private equity industry

A good quote has been making the rounds in cyberspace. It comes from a New York Times article about the state of the private equity industry these days:

“They see the handwriting on the wall,” stated Martin S. Fridson, a leading expert on junk bonds, stated of buyout firms. “They’re staring into the jaws of hell.”

The message is as true this day as it was last week when the original article came out. Here are some of the key data points from the piece:

• Blackstone (NYSE: BX) earnings tumbled 89% in the final three months of 2007.
• On paper, Blackstone’s CEO Stephen Schwarzman has personally lost $3.9 billion as the price of Blackstone’s stock has sunk — and that loss is even more massive today, as Blackstone’s stock continues to fall (as of Thursday morning, it is below $15 a share).
• Banks are saddled with billions of dollars of buyout-related debt they cannot sell, serving as the next possible wave of write-downs after the subprime mortgage debacle. Citigroup, Goldman Sachs and Lehman Brothers are currently holding what some analysts estimate is $130 billion in leveraged loans, or those supporting private equity deals.
• Surveying junk debt offerings since 2002, the analytical firm FridsonVision found that companies taken private tend to suffer more distress than their peers.

Amazingly, a former Blackstone executive claims that no one saw this collapse coming: “‘No one saw this kind of outcome,’ Michael Holland, chairman of the New York investment firm Holland & Company, and a former Blackstone executive, stated of the buyout industry’s troubles.” It’s hard to know what to make of that. Is this statement evidence that at least some bankers believed their own hype, that what goes up never comes down?

But the more practical question is, when are things prone to turn around, or at least hit bottom? Not until the market has fully accounted for the bad debt stuffed into all the corners of the global capital system. And that might take a while. As Hamilton James, Blackstone’s president, put it: “Our view is that things will get worse before they get better.”

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Filed under: Home, Ripoffs and Scams

When I need some home repair, I use Angie’s List. I think I’m paying dearly for it.

Angie’s List is founded on the idea that customer experiences are the best gauge of a company’s performance. The membership organization functions as the intermediary between vendors, usually home-repair oriented, and those who hire their services. Members provide feedback about their experiences, and using this data, Angie’s List rates local service companies. Members in turn look to this list when they need a service, so a good rating can drive a great deal of business. The List also acts as ombudsman in looking for resolution of disputes.

I have no quibble about the quality demands that the List puts on vendors. The companies I’ve hired from the list have been very professional and attentive.

The reason I’m an agnostic is that my experience advocates I pay through the nose for using the service. For example, a few weeks ago, I had a leak in a two-part toilet. With an injured arm, I was unable to do the easy plumbing myself, so I called a plumber with a top Angie’s List rating, one that promised a savings for List members.This plumber determined that the seal between the tank and bowl was leaking. The charge to replace it, and the line from the bowl to the water tap? $185. Or, he said, rather sheepishly, he could do a complete toilet rebuild for $385.

$385 freakin’ dollars? A rebuild involved replacing the float and flap mechanisms in the tank ($20 and 20 minutes), pulling the tank and replacing the seal ($10, 20 minutes), and running a new line from the water line to the tank ($10, 5 minutes). It’s not rocket science. It’s not even science 101. And it certainly isn’t worth $385.

My suspicion is that when I tell a service person I found his company on Angie’s List, he figures that I’m already determined to hire his company due to the promise of quality work. Consequently, he highballs his estimate.

I paid the plumber $65 for his visit and ended up fixing the toilet myself. I figure the $65 is worth it to instruct me to keep my mouth shut about Angie’s List the next time I call a service company. Let them think I’m shopping on price. Maybe then I’ll get a quote that makes sense.

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Filed under: Ripoffs and Scams, Fraud

Doing some research on eBay scams tonight, I encountered one of the best YouTube videos of all time — Kelli Filkins appeared on Judge Judy to defend plaintiffs’ claim that she had defrauded them on eBay by sending them a picture of a camera they paid $240 for. She claimed that the ad stated it was for a picture only.

What ensued is possibly the greatest smackdown in the history of Judge Judy — who tells Ms. Filkins that she’s a “outrageous person” and tells her that “If you live to 120, you’re not gonna be as smart as I am in one figure. You may weigh more, but you’re not gonna be smarter than I am in one figure.” Burn sauce!

Always nice to see the long arm of the law sticking it to a crook. I love Judge Judy.

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Filed under: Engagements, Private equity industry, Shareholders, Public or private?

Getty Images, Inc. (NYSE: GYI) has had a class action lawsuit filed against certain officers and directors by the Law Offices of Brian M. Felgoise, P.C. The goal of the lawsuit is to seek the highest possible offer for the public shares in connection with the buyout from Hellman & Friedman, LLC for $34.00 per share.

On the surface you might agree that “the highest price” wasn’t obtained or wasn’t well negotiated. After all, Getty Images shares traded north of $50.00 last year and traded north of $80 in much of 2005 and part of 2006. There’s just a problem that is too hard to blame on Getty, its management, and its employees: its business dominance peaked and its relative strength to hundreds or thousands of start-ups and emerging companies has come and gone. And the sad part is that there’s nothing it can do about that.

The virtual industry de-merger of Getty was something we predicted quite well in our subscriber newsletter posted last Might, and the only thing we didn’t get right wasn’t being negative enough in a fast enough period of time. Our exit came in August, 2007 rather than in early to mid-2008.Shortly after that, we noted that Getty looked like a value stock that might just be a value trap.

Getty has made numerous acquisitions to try to win more in the digital rights space, but there are just too many small competitors that can operate for almost free. Frankly it did what it could and was aggressive to be able to compete in royalty free images and then in other media acquisitions. Management isn’t to blame so much here. Some businesses can easily be ruined by crowdsourcing and that’s the case here. In fact, and school with a huge exchange program could “wiki” the entire model.

Here’s the good news, Getty will always survive as long as its exclusive pic and video rights are in tact for live events such as concerts and sporting events. But its days of charging $200.00 to newspapers and web media outlets for a digital pics of a broken fire hydrant or a bear waiting for fish in a river are gone. It cannot acquire everyone.

Sure, this seems like a “thanks for nothing” private equity buyout on the cheap. But there was a time that it looked like no one was going to offer anything above $30.00. Sometimes the news isn’t good no matter what you try. And sometimes the less-bad news is superior than nothing. As a public company, Getty would have had more than a very tough road ahead of it.
Hellman & Friedman got a steal on the Doubleclick acquisition which the firm sold to Google (NASDAQ: GOOG). But this deal is harder to see a grand end game in, or at least anywhere along the same lines. This class action may do more harm than good.

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